Past Experiences and Investment Decisions: Evidence from Real Estate Markets

35 Pages Posted: 4 Jun 2020

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University - Department of Insurance & Real Estate

Lily Shen

Department of Finance, Clemson University

Date Written: April 30, 2020

Abstract

This paper investigates how market participants form risk perspectives through a sequence of information shocks. Guided by a theoretical Bayesian learning model, we exploit a natural experiment afforded by the fracking boom in Pennsylvania in the late-2000s. We empirically examine whether familiarity with historical conventional gas explorations affects home-buyers’ willingness to pay for houses near fracking wells. We find the local real estate market is very efficient with home buyers rapidly collecting and processing market-relevant new information. We also find that buyers discount historical events and rely on current information to estimate the risk of a change in market conditions.

JEL Classification: D, R

Suggested Citation

Ambrose, Brent W. and Shen, Lily, Past Experiences and Investment Decisions: Evidence from Real Estate Markets (April 30, 2020). Available at SSRN: https://ssrn.com/abstract=3589748 or http://dx.doi.org/10.2139/ssrn.3589748

Brent W. Ambrose

Pennsylvania State University - Department of Insurance & Real Estate ( email )

Smeal College of Business,
Penn State University
University Park, PA US-0-PA 16802
United States
8148670066 (Phone)

HOME PAGE: http://https://sites.psu.edu/brentwambrose/

Lily Shen (Contact Author)

Department of Finance, Clemson University ( email )

Clemson, SC 29631
United States

HOME PAGE: http://https://sites.google.com/g.clemson.edu/lily-shen

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
202
Abstract Views
777
Rank
298,495
PlumX Metrics